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Decoding Route Mobile IPO That Opened Today

Decoding Route Mobile IPO That Opened Today

Route Mobile IPO

Route Mobile is a leading cloud-communication platform offering voice, email, messaging and analytics services. The company is looking to raise Rs 600 crore through an IPO, by selling up to 1.71 crore shares at Rs 345-350 apiece. The offer consists of a fresh issue of up to Rs 350 crore and a stake sale, aka offer-for-sale, by promoters Sandipkumar Gupta and Rajdipkumar Gupta. The promoters currently hold a 96% stake in the company, however, after the share sale, the promoter shareholding will fall to 66.33%. As per its prospectus (RHP), the company plans to use the proceeds from this IPO to repay debt, for acquisition and other strategic initiatives, for purchasing office premises in London and Singapore and for general corporate purposes.

Route Mobile is currently ranked the second {globally} as a tier 1 A2P  service provider and is also ranked 1st for ‘value-added services’ provided. Staffed with 300 employees, the company is serving its clients through 18 locations across Africa, Asia Pacific, Europe, the Middle East, and North America. The company’s operations are internally aligned into three business verticals namely enterprise, mobile operator and business process outsourcing. In fiscal 2020 and in the 3 months ended June 30, 2020, it has serviced 2,787 customers and 1,380 customers, respectively, across sectors including social media, banking, and financial services, aviation, retail, internet/e-commerce, logistics, healthcare, hospitality, media and entertainment, pharmaceuticals and telecom.

Click here to apply for Route Mobile IPO.

Business Verticals of the Company

Started in 2014, Route Mobile provides cloud communication platform as a service to enterprises, streaming apps and mobile network operators. The company’s operations are internally aligned into the following three business verticals:

  1. Enterprise: Its enterprise vertical primarily provides a cloud-based communication platform to enterprises to enable digital communication through multiple channels including RCS, A2P / P2A messaging, 2Way Messaging, OTT business messaging, enterprise email and URL shortening; and Mail2SMS. This platform also provides enterprise voice application services including interactive voice response, Click2Call, missed call facility, and outbound dialer, which enable enterprises, to connect incoming and outgoing voice calls to their applications and systems. The CPaaS platform gives its current and potential customers the ability to leverage its super network and APIs to build out their digital communication service needs. Route Mobile provides a suite of APIs for various communication channels, across multiple geographies that are scalable and flexible to fit the customers’ requirements. It has also recently launched Route Mobile API Developer Network – a program that enables developers to leverage capabilities of its platform and seamlessly deploy digital communication features within their applications/software.
  2. Mobile Operator: Its main service offerings in this segment include SMS analytics, firewall, filtering, monetization, and CPaaS and hubbing solutions. Its analytics-based SMS firewall solution helps mobile network operators (MNOs) identify grey route traffic terminating on their networks, block grey route traffic, identify the source of such grey route traffic, and monetize such traffic. It has developed multiple engagement models, to offer flexibility to MNOs while using its solution. Route Mobile typically engages with MNOs on a revenue share model when deploying this solution certain MNOs also engage with Route Mobile for its hubbing solution and CPaaS offerings, to leverage its global connectivity and A2P platform.
  3. Business Process Outsourcing (BPO): Route Mobile provides a range of BPO services including client support, technical support, booking and collection services. The strategic objective is to integrate its BPO capabilities with its enterprise voice platform and deliver end-to-end offerings to enterprise customers. Route Mobile is an associate member of the GSMA and an accredited open hub connectivity solution provider with its internally developed cloud communications platform allowing them to handle both A2P and peer-to-peer (“P2P”) traffic for enterprises, OTT players and MNOs. In the 3 months ended June 30, 2020, through its cloud communications platform, Route Mobile processed more than Rs 695 crore billable transactions.

Key Highlights

  • MNO focused suite of products Route Mobile is able to diversify its service offerings in the mobile operator segment with its acquisition of 365 squared to include SMS analytics, firewall, filtering and monetization solutions. It proactively helps MNOs identify A2P revenue leakage and monetize the same. In addition, it assists MNOs in securing their networks and improves their understanding of how A2P messages terminate on their network. On average, its SMS firewall contracts with MNOs have a tenure of 3 years, which provides Route Mobile with reasonable visibility and stickiness of revenue.
  • Consistent financial performance: The company has a number of clients on a pre-paid business model where the client pays upfront allowing them to reduce the overall working capital cycle. Its total revenue increased at a CAGR of 37.61% from Rs 504.95 crore in Fiscal 2018 to Rs 956.25 crore in Fiscal 2020. The company’s profit after tax (PAT) grew at a CAGR of 21% from Rs 47 Cr in fiscal 2018 to Rs 69 cr in fiscal 2020. In fiscal 2018, 2019 and 2020, 41.77%, 24.99%, 17.01% of its revenue from operations, respectively, were prepaid. The standard terms of the agreements with its postpaid clients require payments to be made within 30 – 60 days.
  • Diversified client base: Route Mobile has a diverse enterprise client base across a broad range of industries including social media companies, banks, financial institutions, e-commerce entities, travel aggregators and other client-facing companies. Additionally, its MNO clients include over 25 operators across 4 continents as of June 30, 2020. In addition, its client base is spread across 4 continents and as of June 30, 2020, and they have served over 30,150 clients (cumulatively) since inception. In fiscal 2018, 2019, and 2020 and in the 3 months ended June 30, 2020, its 10 largest clients accounted for 36.08%, 46%, 52.50% and 63.65% of its revenue from operations, respectively. Their diverse global client base helps them limit their dependency on a specific client, industry, or geography and reduces financial risk.

Covid-19 Impact On Company’s Business

Since the onset of the COVID-19 pandemic in March 2020, the company has responded swiftly by implementing various processes to ensure its operations and services to its customers continue seamlessly. They maintain a robust VPN infrastructure, which has enabled and equipped its employees to work from home, ensuring no service disruptions and uninterrupted support to their customers. The company has also deployed security systems to safeguard assets and customer data as well as issued detailed work from home protocols to enable secure usage. Their platform is designed to handle any increases in traffic and its servers maintain excess capacity, which can be scaled in real-time as well. All their servers and platform are maintained in Tier III data centers and all components are managed remotely by authorized personnel only and through secured connections.

Further, their support teams continue to operate and are reachable through the same channels available to the customers before the pandemic. They have conducted internal processes as usual including payroll and hiring as well as revenue closure and invoicing.

Key Risks

  • Inability to maintain relations with MNOs: The company depends, in part, on the success of the strategic relationships with third parties, particularly direct relationships with MNOs. The company’s inability to enter into or maintain such relationships, particularly with MNOs may adversely affect their business, financial condition, and results of operations.
  • Technology failures: Failures, defects, delays and other problems involving the technology systems and infrastructure, on which companies rely on for providing their services and solutions to clients, may adversely affect business, financial condition and results of operations.
  • Forex fluctuations: The company faces foreign exchange risks that could adversely affect our results of operations and cash flows.
  • Client concentration: Major revenues of the company are dependent on a limited number of clients. The top five clients of the company contributed 51% of the total revenue in the quarter ended June 2020. A loss of any single client from this group can adversely impact their revenues.

IPO Snapshot

  • Price band: Rs 345 – Rs 350 per share
  • Issue size: Rs 600 crore
  • Minimum investment: Rs 14,000 (bid lot size of 40 shares)
  • Face value: Rs 10
  • Listing on: NSE and BSE
  • Book running lead managers: Axis Capital Ltd, Edelweiss Financial Services Ltd, ICICI Securities Ltd, and IDBI Capital Ltd.

Valuation and View

At the upper price band of Rs 350, the issue has been offered at P/E of 25.4x to its FY20 EPS of Rs 13.8, the company does not have any listed peers. Considering increasing internet penetration and increased use of cloud communication services enterprises, the size of the global A2P market is expected to grow at a healthy rate in the coming years. Route Mobile being ranked 2nd globally in tier 1 A2P service provider is likely to benefit. Diversified and global client base across industries, a scalable delivery platform supported by good infrastructure, a robust business model with a consistent financial track record are the key positive factors that augur well for the company.

We recommend Investors to subscribe for the issue.

Click here to apply for Route Mobile IPO.

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